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Real estate legal malpractice claims on the rise

Legal News Reporter

Published: September 24, 2012

The American Bar Association has just released its fifth three-year study on legal malpractice claims. For the first time since these surveys were taken in 1985, real estate-related legal malpractice insurance claims are the number one cause of these actions.

The current study, conducted from 2008-2011, shows an increase in these kinds of claims. The previous study, conducted from 2004-2007, showed an increase in real estate-related claims as well from the study before that.

Real estate, personal injury-plaintiff and family law were the top three areas in the "Profile of Legal Malpractice Claims: 2008-2011," released by the ABA Standing Committee on Lawyers' Professional Liability. The study comprised reports from 28 malpractice insurance carriers, U.S. and Canadian, on about 57,000 claims filed.

Real estate malpractice accounted for over 20 percent of those claims. “Advice” was second.

"The authors believe that failed real estate (and other business) transactions likely were the source of increased claims in the 2011 study, but it would be a leap to state that is definitively so based on the data," the report states.

That real estate should be at the top should be no surprise, however, said Attorney W. Bradford Longbrake, of the Akron office of the Reminger law firm. Longbrake represents clients in various areas of professional responsibility, including attorneys, real estate agents and brokers and title search companies.

“It makes sense that we are seeing more cases like that now, and also that there has been a progression from the previous study,” he said.

Longbrake said that the entire real estate industry, not just the legal side of real estate transactions, has seen an increase in such litigation.

“In my experience in working in this area, it is not just claims against attorneys that are on the increase,” he said. “We have also seen an increase in malpractice claims against real estate brokers, agents and title companies. This trend is true through the entire real estate environment.”

Longbrake points out that these are legal malpractice claims filed with insurance companies. Those claims do not indicate that any money was paid out, and are not the same as malpractice litigation (although all are connected, of course).

One interesting aspect of this three-year study, said Longbrake, is that, since malpractice claims have a one-year statute of limitations, it is possible to get what is essentially a real-time view into the legal side of a real estate market on the downturn.

That particular wave of insurance claims in this and the prior years’ studies, said Longbrake, corresponds with the years in which the mortgage market rose and fell precipitously, causing a market crash and numerous foreclosures around the country and locally, dragging down the entire national economy.

“People were fighting over foreclosures, and so more lawyers were involved,” he said. And, he added, “everyone makes mistakes. A lot of the claims were with merit.”

Longbrake then went on to say that the market has changed recently, and he has seen a definite decline in real estate-related malpractice claims in the last year.

There may be several reasons for that decline, he said, including a foreclosure market that seems to have evened out, and the fact that courts, the Ohio State Bar Association, community organizations, banks and other entities have combined to slow the foreclosure process down through mediation and other means.

People likely filed malpractice claims because they were under the pressure of losing their homes over the past few years, he said. Now that the court cases are slowing down and mediation and other alternative resolutions are finding a place in the system, people can afford to wait and see what will happen. Because of that, they may not be as quick to pull the trigger on a claim which could account for the decrease in claims that he has seen.

Of course, any change in the market could also reflect in the numbers of malpractice claims.

One interesting finding in the new report was that failure to file papers in a timely fashion, long the number-one reason for malpractice lawsuits given by legal ethics teachers, dropped from the number-two reason for malpractice claims in the previous study to the bottom third. One could project that the proliferation of calendaring apps among lawyer smart phones and iPads may be slightly responsible for this drop.